Large bank stocks are expected to rise following the adjustment of the SET Index calculation methodology, supported by their relatively high proportion of free-float shares at over 70% and market cap of over hundreds of billion baht, according to research by Yuanta Securities.
The Stock Exchange of Thailand (SET) will likely soon revise its calculation rules for the SET Index by substituting free float-adjusted market capitalisation with full market capitalisation to prevent speculation on stocks with low liquidity.
The brokerage expects investors will speculate on gaining stocks, especially bank stocks, before passive funds and funds that are using the SET Index as the benchmark to adjust portfolios in accordance with the newly-adjusted weight of stocks in the Index. The adjustment may have continuing effects on the weight of each stock in the Index.
Stocks that are expected to gain following the weight adjustment include Bangkok Bank (BBL), Siam Commercial Bank (SCB), Siam Cement (SCC), Kasikornbank (KBANK), Bangkok Dusit Medical Services (BDMS) and Intouch Holdings Plc (INTUCH).
In contrast, some stocks are expected to drop in value such as Delta Electronics (DELTA), Airports of Thailand (AOT), Gulf Energy Development Plc (GULF), Advanced Info Service (ADVANC) and Global Power Synergy Plc (GPSC).
It is noteworthy that the majority of stocks that are likely to gain weight in the Index are banks, especially large ones such as BBL, SCB and KBANK that have over 70% of free float and relatively large market capitalisation valued at hundreds of billion baht.
Under the new methodology, certain stocks may be able to increase their weight in the rankings in the SET100 Index by up to 20 positions, which may affect the calculation for the selection of SET50 and SET100 stocks in the future. Changes in the weight of each stock will also drive each fund or passive funds with investment in the Index to adjust their weight to reduce "Tracking Error" compared to the underlying index.
The research said the passive funds have total net asset value worth around 50 billion baht while funds that are tracking SET50 Index as a benchmark have around 90 billion baht at present.
As the adjustment is mainly related to the flow of capital, it will not affect the listed firms' fundamentals in any way.
"The SET has not yet officially announced the new measures. Our calculations can offer only a preliminary estimate," notes the research report.
Investors are advised to monitor the revision of definition and calculation methodology for free float that will affect the calculation of free float-adjusted market capitalisation, the amendment of criteria for stocks entering the SET50 and SET100, and the adjustment in the calculation of free float-adjusted market capitalisation in which more variables or factors may be added.